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ELASTIC DEMAND: Relatively small changes in demand price cause relatively larger changes in quantity demanded. Elastic demand means that changes in the quantity demanded are relatively responsive to changes in the demand price. An elastic demand has a coefficient of elasticity greater than one (the negative value is ignored). You might want to compare elastic demand to inelastic demand, elastic supply, and inelastic supply.

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Lesson 16: Aggregate Shocks | Unit 4: Complex Shifts Page: 13 of 21

Topic: AD <=PAGE BACK | PAGE NEXT=>

Our analysis of AD-curve-induced aggregate market adjustment from one equilibrium to another is more complex when we include the self-correction mechanism from the short run to the long run.

Two cases:

  • Aggregate demand increases.
  • Aggregate demand decreases.

The complex adjustment is a two step process:

  • First: The AD curve shifts, which leads to a short-run equilibrium and moves the aggregate market away from the long-run equilibrium.
  • Second: Wages adjust to achieve equilibrium in the labor market--eventually--which changes production costs, shifts the SRAS, and restores long-run equilibrium.

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FIRST-DEGREE PRICE DISCRIMINATION

A form of price discrimination in which a seller charges the highest price that buyers are willing and able to pay for each quantity of output sold. This is also termed perfect price discrimination because the seller is able to extract ALL consumer surplus from the buyers. This is one of three price discrimination degrees. The others are second-degree price discrimination and third-degree price discrimination.

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Today, you are likely to spend a great deal of time at a flea market looking to buy either a package of 4 by 6 index cards, the ones with lines or a 50 foot extension cord. Be on the lookout for the last item on a shelf.
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The Dow Jones family of stock market price indexes began with a simple average of 11 stock prices in 1884.
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-- Theodore Roosevelt, 26th US president

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